These provisions relax the occupation and ownership conditions in s.123(1)(a) where the agricultural property owned by the company at the time of the transfer has replaced other agricultural property - ss118 and 119(1).
and
The relief available under ss.(1) and (2) of s.118 should not
exceed what it would have been had the replacement(s) not been made
– s.118(3). The purpose of s.118(3) is to prevent a company
which has qualified for relief from increasing the amount of relief
available, by purchasing a much more expensive property shortly
before a death or the making of a transfer. It is an anti-avoidance
provision.
Our approach to s.118(3) should be practical. You should
adopt a reasonable approach aimed at quantifying and agreeing the
restricted relief in a practical way. If there is any indication
that the company’s resources were being rearranged into
considerably more extensive agricultural property to obtain
increased relief on the death/transfer, the case should be referred
to the Appeals Team. The approach to be adopted is illustrated by
the following example.
| Example
Company A owns and farms Blackacre and has done so for a number of years. October 2005 - Company A sells Blackacre for £600,000 and buys Whiteacre for £800,000 to increase the scope of its farming operations. Both transactions are at arm's length. Both prices are wholly attributable to agricultural value. April 2007 - The owner of all the shares in A dies. Whiteacre then has an agricultural value of £1,000,000. The two year occupation condition in s.118(1) is satisfied. A practical way to give effect to s.118(3) in such circumstances is to adopt the following apportionment: | |
| agricultural value of Blackacre at time of sale (on the facts, the sale price) | X agricultural value of Whiteacre at date of death |
| agricultural value of
Whiteacre at the time of the purchase (on the facts, the purchase
price)
| |
| or in figures | |
| 600,000 | X £1,000,000 = £750,000 |
| 800,000 | |
| The result of this approach is that on the death the AR on Whiteacre is limited to £750,000. The excess of £250,000 does not qualify for AR. | |
Costs of sale and of purchase should be disregarded.
It is considered that the apportionment approach set out
above is a practical and equitable way of giving effect to
s.118(3). However s.118(3) does not expressly provide for such an
apportionment. If in any case its application is questioned you
should ask the agents for their views on how the subsection
operates on the facts of the particular case. You should then refer
those views to the Appeals Team for consideration.
Under s.118(4) changes resulting from the formation,
alteration or dissolution of a partnership are to be disregarded
for the purposes of s.118(3).
For further information see Chapter 24 of the Inheritance
Tax manual at IHTM24135 et seq.
|
| Additional Guidance: SVM150000 |
